Top 5 Packing & Moving Tips

Moving can fire up a rollercoaster of emotions. The early rush of excitement may give way to stress over the looming to-do list of all that needs to happen before the big move.

Like any life transition, moving requires a lot of preparation. Thankfully, there’s no shortage of ways to help streamline the process.

Below are some tips that could make moving more efficient, including a guide to common costs to prepare for.

How to Streamline a Move

Here are a few helpful suggestions whether you’re easing into a new townhouse, apartment, condo, or home.

Get Rid of Unwanted Items

Moving is a chance to let go of items that have gone unused for months or years.

In addition to being able to get rid of unwanted “stuff,” decluttering can help you cut back on moving expenses. With fewer things to move from point A to point B, there’s less need for packing materials or an extra large moving truck. It may even help make the move speedier and more cost-effective, since there’s less stuff to carry (or pay someone else to carry). What’s more, reducing how much you have can also help ensure your new place won’t feel overstuffed.

Prepare Early

As you declutter, it can be useful to identify boxes and packing materials needed during the move, such as packing tape, markers, labels, scissors, newspaper, and bubble wrap. Why spend money on new cardboard boxes when there are likely unused boxes already lying around your home or at friends’ places? A visit to local recycling drop-off points may be in order, as it’s possible they’ll have free cardboard boxes available there, too.

Consider starting off your packing a few weeks ahead of time, with non-essential items like out-of-season clothes or kitchenware that’s rarely used. And consider taking photos of all valuable items as you go. This way, if anything breaks or movers damage something during the move, it will be easier to file a claim and receive reimbursement for it.

Tie Up Loose Ends

Moving to a new area? Consider making a list of everyone you’ll want to contact once you’re settled in your new place.This may include:

•   Friends and family members

•   U.S. Post Office

•   Employers

•   Credit card companies and other financial institutions

•   Service providers (e.g., water bill or internet)

If you’re hoping to keep utilities or services with a specific provider, it may help to call ahead of time to verify if those services are offered in the area you’re moving to and if the service can be transferred to your new address on or after move-in day.

Keep in mind if you’re starting a new service with a new company, you may need to notify them weeks in advance so they have enough time to schedule a technician’s visit or mail out the necessary equipment.

If you’re leaving the region, you’ll also want to make a note to cancel recurring memberships at local-only businesses, such as gyms and fitness centers.

Organize Moving Documents

From leases to service contracts to quotes from moving companies, there’s a lot of paperwork to manage with a move. It can help to keep all important documents organized in a single folder (and be sure to print out a copy of any documents sent to you electronically). Some paperwork to include in the moving folder could be:

•   Old leasing agreements

•   A new signed lease (if renting again)

•   Invoices from professional movers

•   Receipts associated with the move

The paperwork may even come in handy after you move. Members of the U.S. Armed Services may be able to deduct moving expenses, for example. And some companies will reimburse employees who are moving to accept a new job for common moving expenses. Talk to your human resources department to find out if you qualify and which receipts or invoices will be required for documentation.

Prepare a Tip for the Movers

For those who plan to hire professional movers, setting aside cash in an envelope could help when it comes time to tip. Often, people tip their movers if they’re happy with the job they completed. Taking out cash the day before a move can simplify tipping, as it’s one less thing to think about during moving day.

Recommended: The Ultimate Moving Checklist

Common Moving Expenses

When budgeting for a move, it can be useful to plan for expenses that can add up quickly.

Understanding Professional Moving Costs

If you’re moving yourself, plan on paying an average of $50 per day to rent the truck, and budget more for mileage, gas, tolls, and other expenses.

If you’re hiring professionals for the job, you can expect to pay quite a bit more. An in-town move that uses a team of two movers could cost an average of $80 to $100 per hour, according to Consumer Affairs. Moving to another state? Be prepared to spend upwards of $5,000 or more, depending on how far you’re going and the amount of stuff you’re hauling.

You may also want to consider whether to budget for packing services, which typically runs anywhere from $300 to $500, and moving insurance, which protects you in case your items are lost or damaged during the move.

If you’re looking to save a little money — and your schedule is flexible — you may want to look into moving during the middle of the week or middle of the month, when demand tends to be lower.

Estimating Transportation Costs

In addition to budgeting for the cost of moving your things, it’s good to calculate the expense of transporting yourself to your new home. Be sure to factor in expenses such as flights, lodging, food, rental car, and gas.

Other Supplies and Expenses

You might already be loading up on bubble wrap, packing tape, boxes, and labels. But there may be other moving-day essentials to consider.

1.    Cleaning supplies: Many landlords expect outgoing tenants to leave a property just as they found it: clean and empty. Be sure you have a mop, broom, cleaners, and sponges on hand.

2.    Repairs and renovations: Whether you’re patching holes in your old place or making upgrades in your new home, consider budgeting for any renovations or repairs.

3.    Furniture and other home items: You may find that when you move into your new space, you need to buy some new furniture. You may want to set aside a little extra for these purchases.

4.    New license and vehicle registration: If you’re moving across the country, you may need to calculate the cost of getting a new driver’s license and registration in a different state. Fees for getting a new license and vehicle registration vary by state.

Recommended: Things to Budget for After Buying a Home

The Takeaway

Whether you’re relocating across town or across the country, moving can be exciting. But it can also be stressful and expensive. To help streamline the process, you can remove and donate any unwanted items, assemble your supplies and the movers’ tip ahead of time, organize all the moving documents in one place, and alert family, friends, employers, and creditors of your new address.

It also helps to prepare your budget. A DIY move is often the most affordable option — on average, it costs around $50 per day to rent a truck, which does not include mileage, gas, tolls, and other expenses. A professional mover costs substantially more. An in-town move that uses a two-person team may cost around $80 to $100 per hour, but that price could climb into the thousands for an interstate move.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.



Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What Is a Money Pool?

Guide to Money Pools

Money pools provide a platform for friends, relatives, or colleagues to combine their savings. The purpose of this arrangement is to leverage each member’s financial resources to save money, reach short-term money goals, or create financial security.

While money pools gained popularity centuries ago in developing countries, such as India and Southern Africa, they have continued to provide a banking solution for migrant communities in the U.S. Here’s a look at how money pools work and how they benefit folks that don’t have access to traditional banking products like savings accounts.

Read on to learn:

•   What is a money pool?

•   How do money pools work?

•   What are the pros and cons of money pools?

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What Is a Money Pool?

So, what are money pools exactly?

A money pool is when a group of individuals (friends, family members, neighbors, or coworkers) combine their savings into one pot. The group decides on a monthly contribution amount they will each put into the pool.

Then, every month, one person from the group will receive the total sum of the money pool to do as they wish. The group can either draw names to decide who gets the money or make an arrangement based on a mutual understanding. Funds are distributed monthly until the entire pool is depleted. In this way, it’s somewhat akin to peer-to-peer lending.

However, money pools don’t just happen; they must have a responsible party that organizes the group. The money pool organizer tackles tasks such as collecting the money, tracking contributions, and planning distributions. The organizer keeps order, so each member understands and adheres to the group’s guidelines.

Money pools mainly exist in developing countries, with minimal access to credit or banking solutions like savings accounts. However, many U.S. immigrant communities nationwide use money pools as a solution for helping people within the community pay bills or save for financial goals. It can also serve as an example of pay-it-forward finance and helping those close to you.

Recommended: Short-Term Financial Goals to Set for Yourself

How Do Money Pools Work?

A money pool works like this: Let’s say a group of three friends decide to create a money pool. They decide that they will contribute $400 per month creating a $1,200 money pool. Each month, one friend from the group will receive $1,200. No matter who receives the funds for the month, every person in the group continues to contribute so the money pool amount always has $1,200 in it.

A money pool provides an immediate source of funds for someone needing to pay for unexpected expenses. In other words, the money pool can act as an interest-free loan to pay off medical expenses you can’t afford, car repairs, or tuition costs. A money pool can also provide a forced savings method for the last person who receives the funds.

The organizer usually determines who should receive the funds first. They may consider financial needs to assess the arrangement of the distribution of funds.

Reasons Why People Use Money Pools

For centuries, people have been using money pools around the world as an alternative to traditional savings solutions. However, folks are more likely to use money pools if they have:

•   Limited or no access to traditional banking institutions.

•   A bad credit score that making it challenging to qualify for financing.

•   Minimal financial resources; the money pool can be a way to save money with a low income.

•   The need to borrow or save money.

Examples of Money Pools

Money pools exist around the world and often go by various names. In U.S., Americans usually refer to this type of arrangement as a money pool or rotating savings and credit association (ROSCA).

Different communities call money pools by different names. Some examples of other names for money pools are:

•   Tandas in south and central Mexican communities

•   Cundinas between northern Mexico and Washington state

•   Susus in the Caribbean

•   Pandeiros in Brazil

•   Hui in Asia

•   Arisan in Indonesia

•   Ayuuto in Somalia

Recommended: Creative Ways to Save Money

How to Determine if You Should Join a Money Pool

If a money pool piques your interest, consider a few key points before moving forward with this financial decision.

•   Affordability of recurring payments. Make sure you can afford and have the money discipline to contribute the recurring payment amounts. A money pool isn’t like a traditional savings account where you can pull money out whenever you want. Think carefully to be sure that contributing won’t put you in a financial bind.

•   Trustworthiness of key members. You may feel uncomfortable contributing to a money pool with a group of members you don’t know well. Instead, consider creating a money pool with people you know and trust.

•   Organization of the money pool. Someone must be the organizer if you establish your own money pool. Money pool apps are available to help you organize your group and streamline contributions and distributions.

If you’re still on the fence, you may want to explore Community Development Financial Institutions or CDFIs as an alternative solution. What is a CDFI? These financial institutions cater to underserved communities. In addition, CDFIs offer banking products such as checking accounts to those who may have been turned away by traditional banking institutions. So, if you have a low credit score or are struggling to find a suitable savings vehicle, CDFIs could be worth considering.

Pros of Money Pools

Money pools can be advantageous to consumers for the following reasons:

•   Provide access to cash. A money pool offers an alternative solution for accessing funds if individuals don’t have access to lending institutions.

•   Members instill accountability. The social pressure of accountability encourages the group members to adhere to the money pool commitment.

•   Interest-free loans. Money pools provide an interest-free way to pay for unexpected expenses like medical bills or car repairs.

Recommended: What Is a Lifeline Checking Account?

Cons of Money Pools

While money pools have benefits, they can also have some drawbacks, including:

•   Funds in the account are not interest-bearing. Members can grow their money in other interest-bearing accounts, like a high-yield saving account.

•   Members who don’t make payments put the group at financial risk. Members of the money pool could suffer a financial loss if someone doesn’t contribute when they are supposed to. This is especially true for the last member to receive the lump sum.

•   Risk of social disapproval. You must make an agreed-upon payment or you could be kicked out of the money pool and face social consequences such as being shunned from your community.

Recommended: Different Types of Savings Accounts

The Takeaway

Money pools allow a group of people to combine their savings while helping each other financially. Each member contributes to a fund of money, which is then disbursed to members sequentially, allowing every person involved to receive a lump sum of cash. While this type of savings vehicle is used in the U.S., it’s more prevalent in developing countries since financial resources are often limited.

3 Money Tips

  1. Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
  2. If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.
  3. When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is there a reason for developed countries to use money pools?

Yes, for communities with limited access to traditional banking and credit, money pools can offer a platform to help individuals achieve their financial goals.

Are money pools safe?

While there is a risk of members failing to contribute to a money pool, the peer pressure of the group usually ensures they will go to great lengths to make timely payments. So even though it’s possible, loss typically occurs only rarely.

Do money pools still exist?

Yes, money pools exist. You may find them in developing countries as well as the U.S.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/bob_bosewell

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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Medical Debt Relief Options

It may come as no surprise that many Americans are stressed about medical debt and the rise of healthcare costs. The average family health insurance premium has increased 43% in the past 10 years, according to a 2022 survey conducted by the Kaiser Family Foundation (KFF). What’s more, one-third of insured Americans are concerned about being able to afford their monthly premiums, and about four in 10 adults (41%) carry some form of medical debt.

Fortunately, there may be some options for those struggling with medical debt.

How Much Do Americans Spend on Healthcare Each Year?

Many people receive health insurance through an employer. And even though employers generally help pay for a portion of the costs, the financial burden can still be significant. A typical household spends $431 per month — or $5,177 per year — on healthcare expenses, according to the U.S. Bureau of Labor Statistics Consumer Expenditure Survey. This includes routine things such as health insurance costs, doctor’s visits, medications, and medical supplies.

At the same time, the U.S. tends to outspend other countries when it comes to healthcare. In 2021, healthcare spending topped $4.3 trillion, or $12,914 per person, according to the latest figures available from the Centers for Medicare & Medicaid Services. That figure represents 18.3% of the country’s Gross Domestic Product.

How Many Americans Struggle With Medical Debt?

Despite employer-sponsored health plans covering some of the costs, some Americans struggle to pay their medical bills.

In fact, nearly 1 in 10 adults — or around 23 million people — owe at least $250 in medical bills, a 2022 KFF analysis found. Of that, 11 million people owe more than $2,000, and 3 million people owe more than $10,000.
Certain groups of people appeared to be more impacted than others. For instance, people aged 35-49 and 50-64 are more likely than other adults to report medical debt. The same goes for people in poor health and those living with a disability. And among racial and ethnic groups, a larger share of Black adults (16%) report having medical debt compared to White (9%), Hispanic (9%), and Asian American (4%) adults.

What Happens If Medical Debt Is Not Paid?

Even if you’re facing an overwhelming amount of medical debt, the worst thing to do is ignore it. Depending on the state where you live, a medical provider might charge you a late fee for bills not paid on time and may even charge interest if payments aren’t made at all.

After a few months, if medical bills go unpaid, the provider might choose to pass the debt over to a debt collection agency.

If the medical provider does decide to give the debt to a debt collection agency, the debt might immediately appear on the debtor’s credit report and affect their credit score. The debt collector will take steps to collect the bill. If the debt is not collected, the provider may take it even further and take legal action.

While U.S. laws don’t allow debtors to be imprisoned for unpaid debts, they could face another consequence, such as wage garnishment. If the case goes to court and a judge rules in favor of the medical service provider, there’s a chance the debtor’s wages could be garnished. In simple terms, this means that payment will be taken out of their paycheck and sent to the provider.

Recommended: Tips for Paying Off Outstanding Debt

4 Medical Debt Relief Options

While there are no one-size-fits-all solutions to help ease the financial burden of medical debt, the following ideas may be worth considering. It’s also a smart move to contact a professional before taking any action.

1. Medical Debt Payment Plans

Because healthcare services are often costly, contacting medical providers to ask if they offer payment plans might be one plan of action to consider. Some medical providers may offer payment plans to pay off debt in installments instead of paying it off all at once, which might make the debt more manageable.

2. Negotiating Medical Debt

It may feel counterintuitive or inappropriate to negotiate medical bills, but some providers actually expect it. While it may seem awkward at first, negotiating medical bills can help make them more manageable. Additionally, negotiating may even help avoid a credit score ding, or worse, getting sued.

For starters, reaching out to the provider’s billing department directly to see if negotiation is possible might be an option. Many providers have financial departments that can determine if patients qualify for discounts or reductions. Remember, when negotiating, try to be as polite as possible. But it can be helpful to be persistent, too.

Another point to remember is that providers may favor cash. So those who can afford to make a lump sum payment might consider asking if the provider offers a discount for a cash payment.

Recommended: What Is Considered a Bad Credit Score?

3. Working With a Nonprofit Advocate

If the medical bills keep piling up, it may be worthwhile to consider finding a nonprofit advocate or reputable credit counseling organization that offers assistance with managing money and debts, creating a budget, and providing resources to help consumers pay off the debt that’s dogging them.

Certified counselors that have been trained to help individuals create a plan to solve financial concerns can be found through the U.S. Department of Justice. These organizations offer counseling and debt management plans and services.

One solution credit counselors may suggest is a debt management plan. These plans may help the borrowers get their debt under control.

With one type of debt management plan, the borrower makes a lump sum payment to the credit organization, and then the organization pays the creditor in installment payments. If you decide to go this route, make sure not to confuse a credit counseling nonprofit organization with a debt settlement company.

In contrast to credit counseling nonprofits, debt settlement companies are profit-driven. They negotiate with creditors to reduce the debt owed and accept a settlement — a lump sum — that’s less than the original debt. However, these companies can charge a 15% to 25% fee on top of the debt settled. While some of these companies are legitimate, consumers are cautioned to be wary of scams.

Some deceptive practices include guarantees that all of a person’s debts will be settled for a small amount of money, that debtors should stop paying their debts without explaining the consequences of such actions, or collection of fees for services before reviewing a person’s financial situation. Researching a company’s reputation can be done through the state attorney general’s office or the state consumer protection agency.

4. Using a Personal Loan

Using a credit card to pay off medical bills doesn’t help anything when you’re trying to reduce your overall debt. Taking out a personal loan could be a way to streamline multiple bills into one monthly payment.

Consolidating medical debt might include a number of benefits, but it’s important to note that it isn’t a cure-all. A loan will not erase your debt, but it could help you get a fixed monthly payment and, potentially, reduced interest rates.

It’s important to compare rates and understand how a new loan could pay off in the long run. If your monthly payment is lower because the loan term is longer, for example, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

Taking the Next Steps

If you’re steeped in medical bills, you’re hardly alone. One in 10 adults owe medical debt, with 3 million people saying they owe more than $10,000, according a 2022 analysis from the Kaiser Family Foundation. While dealing with the debt may not be pleasant, it’s a task you shouldn’t ignore. You may end up having to pay a late fee or interest rate on unpaid bills, or the provider could choose to pass the debt to a collections agency. This could negatively impact your credit score.

Fortunately, there are some debt relief options you may want to consider. Examples include exploring debt payment plans, negotiating the debt with your provider, enlisting the help of a nonprofit advocate, or taking out a personal loan to help pay off the bills.

If you are thinking about taking out a loan to consolidate your debt, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.



Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Understanding The Stock Market Index

Understanding The Stock Market Index

A stock market index measures the performance of a particular “basket” of stocks, representing a specific industry or region. Investors use these market indexes in many ways—to analyze current market conditions, identify industry trends, and invest in index funds.

To help you better understand how market indexes work and how investors use them to their advantage, here’s a deep dive into the inner workings of stock market indexes.

What is a Market Index?

A stock market index tracks a specific group of stocks in a market segment, like a specific industry or region. Indexes can tell investors and financial institutions a lot about specific investments, the sector as a whole, even the overall economy. Here are a few insights investors look to indexes for:

•  To understand how the economy is performing
•  To help with trend forecasting
•  To create benchmarks to evaluate a particular investments’ profitability

Take, for example, the S&P 500, which tracks the 500 largest publicly-traded U.S. companies in the stocks market. Each company is carefully selected to embody every primary industry, thus creating a replication of the market as a whole. Conceptually, an investor might look at the past performance of the S&P 500 to assess whether the stock market is emerging or receding.

How Stock Market Indexes Work

Indexes are made up of hundreds and sometimes thousands of stocks. However, the index doesn’t evenly assess each stock. Depending on what stocks have higher weight in an index, their performance may have more or less influence on how the index performs overall.

There are a few ways indexes are typically weighted:

•  Price weighted: In price-weighted indexes, the stocks with the higher price will have a greater influence on overall performance than those with lower prices.
•  Capitalization weighted: These indexes look at the total value (or market capitalization) of each stock’s outstanding share to determine its weighted value, giving smaller market caps a lower percentage weighting, and higher market caps a larger one.
•  Value weighted: A light math formula is employed in this type of index, where the price of the stock is multiplied by the number of outstanding shares.
•  Equal weighted: In this index type, all stocks are given equal weight, regardless of market cap, value, or price.

Types of Stock Market Indexes

While there are many indexes investors and financial professionals can follow, here are a few examples of stock market indexes.

•  S&P 500. The S&P 500 measures the largest publicly-traded U.S. stocks. Financial professionals use the performance of the S&P 500 as a basis to compare other investment options.
•  NASDAQ Composite Index. The NASDAQ Composite Index measures over 3,000 global and U.S. stocks registered on the NASDAQ stock market. Because it covers so many stocks, it is one of the most followed and quoted indexes. Some of the types of stocks include common stock and real estate trusts (REITs).
•  Dow Jones Industrial Average. The Dow Jones Industrial Average, commonly known as the DJIA, measures 30 US-based blue-chip stocks that are often referred to as the foundation of the U.S. economy. These stocks usually include companies in market segments of the economy, with the exception of transportation and utilities (the Dow Jones has separate indexes for those two sectors).
•  Russell 2000 Index. In contrast to the S&P 500, which follows large-cap stocks, the Russell 2000 follows 2000 of the smallest companies in the U.S. market (or small-cap stocks), making it a good benchmark for small, publicly-traded companies.

How to Invest in a Stock Market Index

Although it’s possible to purchase all stocks within a particular index, this method might be too time-consuming, complicated, and potentially expensive. Another option is to invest in ETFs or index funds or that attempt to replicate indexes’ performance, known as an index fund. This investment strategy is often referred to as index investing.

With index investing, investors can effortlessly access index funds. By investing in index funds, they can also follow some common investing pillars, such as diversification. For example, investing in an index fund helps investors exercise a diversification strategy instead of a strategy centered around stock-picking and market timing.

Advantages of Investing in a Stock Market Index

As an investment strategy, index investing has certain benefits that may attract investors. These are the big ones.

Index Advantage: Simple Investment Management

By investing in a stock market index, investors may earn better returns with minimal effort, making index investing an easier way to manage their investments.

Investing in a stock market index is typically considered a passive investing strategy, where investors buy and hold securities to hopefully capitalize on long-term gains. Conversely, active investors buy and sell securities with the intent to beat the market or some form of index returns.

Because active investors are more hands-on, it’s easy to assume that they may reap higher returns than what the average index investor would see. But that’s not necessarily so. In fact, according to the SPIVA Report , over the past five years, 77.97% of actively managed large-cap funds underperformed the S& P 500.

In addition to most actively managed funds underperforming their passive investing counterparts, active investing requires a lot of time, analysis and is often very challenging.

Index Advantage: Diversification

Diversification is considered by some to be one of the vital building blocks of a thorough investment strategy. With diversification, investors spread their investment across various assets instead of putting all of their money into a single security.

Since investments may perform differently in dissimilar economic environments, diversification may help investors minimize their risk exposure. In other words, if one investment drops in value, investors still have other investments to potentially make up for the loss.

A stock market index fund packages many different stocks in an individual investment, providing nearly instant diversification, vs. investing in just one stock.

Index Advantage: Minimal Barriers to Entry

For investors on a strict budget, it might be challenging to invest in more than just a few companies. However, by investing in a stock market index, they have exposure to a large assortment of stocks using the same amount of cash.

What’s more, investors don’t need the assistance of a money manager or financial advisor to invest in an index. That said, it’s still essential to review any related fees and costs. While indexes tend to have lower taxes and fees, it’s generally a good idea to review all costs involved in any investment before moving forward.

Disadvantages of Investing in Stock Market Indexes

Few things in life are perfect, and that includes investments. Here are some common disadvantages of investing in stock market indexes.

Index Disadvantage: Not a Short-Term Investment Strategy

Because indexes follow the market, their value increases incrementally, making them a better long-term investment strategy than short-term. Investors may also see fluctuations in returns, since they’ll go through various business cycles—Which means that at times, investors may see very small, if any, increases to their portfolios.

Index Disadvantage: They Don’t Fully Follow a Certain Index

Stock market indexes may closely chart the index they track, but they may not perform exactly how the entire index performs. This is because indexes typically don’t include all of the stocks within a particular index; they only include a snapshot of the index as a whole. Thus, the index fund can’t wholly mimic the performance of the entire index.

However, while the index doesn’t directly mimic a stock market’s performance, it tends to have similar price fluctuations. So, if the market increases, typically the index will as well.

The Takeaway

The stock market index is a useful way for investors and analysts to get a sense of how a certain segment of the market is performing—whether that’s the top 500 publicly-traded large-cap US companies or the bottom 2000 small-cap ones. It’s also a way for investors to diversify their portfolios in one move, by investing in an index fund or ETF.

For investors who are interested, the government recommends reviewing all of the information available on a particular index, including the fund’s prospectus and most recent shareholder report. You may also want to identify the fees, your investment goals, and the investment risk of investing in a particular index.

Using the SoFi Invest® online investing platform can help you easily monitor your investments, and invest in low-cost ETFs with no SoFi management fees. ETFs give you exposure to a wide variety of stocks for a fraction of the cost of investing in each stock individually.

Find out how SoFi Invest can help you reach your investment goals.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



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How To Calculate Marginal Propensity to Save

Guide to Marginal Propensity to Save (MPS)

The marginal propensity to save (MPS) is an economic concept that says when a person’s income rises, the MPS will determine the amount of money that is saved vs. spent on goods and services. This is an element in Keynesian Economic Theory, and it can have an important impact. The MPS can enable economists to figure out how to spend either government dollars or private funding.

But does MPS impact the average individual’s savings account? It can be a useful notion, and in this article you will learn:

•   What is marginal propensity to save (MPS)?

•   Why does MPS matter?

•   What does MPS mean to the average person?

The Keynesian Economic Theory, Explained

Economist John Maynard Keynes published The General Theory of Employment, Interest, and Money, or simply as The General Theory, in 1936. This text changed economic thought from that point on and is known as one of the classic economic publications. In the book, Keynes tried to explain economic fluctuations, especially the ones seen in the Great Depression of the 1930s.

Essentially, The General Theory was built on the idea that as a result of inadequate demand for goods and services, recessions and depressions could occur. Keynes’ theory was not just for economists—it was intended for policymakers worldwide. Keynes advocated for an increase in government spending, which would boost the production of goods and services to minimize unemployment rates and enhance economic activity. In general, this theory went against the traditional economic policy of laissez-faire, which requires minimal government involvement.

There are three main elements of this theory. These elements include:

Aggregate demand: This is the demand influenced by the public and private sectors. The level of demand in the private sector may impact macroeconomic conditions. For instance, a lull in spending may bring an economy into a recession. At this point, the government can intervene with monetary stimulus.

Prices: Wages, for example, are often slow to respond to supply and demand changes. This may result in an excess or shortage of labor supply.

Changes in demand: Any change in aggregate demand results in the most considerable impact on economic production and employment. The theory states that consumer and government spending, investments, and exports increase output. Therefore, even a change to one of these factors and the output will change.

The Keynesian Multiplier was created as a result of the change in aggregate demand. The Keynesian Multiplier states, “The economy’s output is a multiple of the increase or decrease in spending. If the fiscal multiplier is greater than 1, then a $1 increase in spending will increase the total output by a value greater than $1.”

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

Calculating Marginal Propensity to Save

The Keynesian Multiplier value relies on the marginal propensity to save (MPS) and the marginal propensity to consume (MPC). Here’s how you can calculate the marginal propensity to save.

Marginal Propensity to Save Formula

When people receive additional income, the MPS is the change in the savings amount. If their income increases, the MPS measures the amount of income they choose to save instead of spending it on goods and services.

That said, this is how to calculate MPS: MPS = change in savings / change in income.

For example, let’s say someone received a $1,000 raise. Of that $1000 increase in income, they decide to spend $300 on new clothes, $200 on a fancy dinner out, and save the remaining $500, so the MPS is 0.5.

(1000 – 300 – 200) / 500 = 0.5

Marginal Propensity to Consume

Conversely, the MPC is the change in the spending, or consuming, amount. If someone’s income increases, the MPC measures the amount of income they choose to spend on goods and services instead of savings.

With this in mind, MPC is calculated as MPC = change in consumption / change in income.

By using the example above, the MPC would be 500 / 1000 = 0.5.

According to Keynesian economic theory, when production increases, the level of income rises too, triggering an increase in spending.

Marginal Propensity to Save Example

As mentioned above, the marginal propensity to save can be illustrated by someone getting a raise. If you receive a $5,000 raise and decide to spend $2,500 on a vacation and save the other half.

The MPS would be change in savings / change in income, or $2,500 / $5,000, or 0.5.

Top 3 Factors That Influence Saving

Knowing how to find MPS and MPC may seem pretty straightforward. However, both calculations only account for the excess of disposable income; the calculations don’t account for other factors that may influence a consumer’s consumption functions. If one of these non-income factors shifts, the entire consumption function may shift.

Here are some of the non-income factors that may influence a consumer’s consumption function.

1. Wealth

Wealth and income are two different variables in economics. For example, suppose Javier has a job earning $60,000 per year. If his aunt Ines passes away and leaves him $200,000 as an inheritance, his income is still $60,000 per year, but his wealth has increased.

Similarly, if Javier owns a piece of art that increases in value or his investment portfolio grows, his wealth has also gone up. Just because his wealth increases doesn’t mean his income does as well.

Therefore, an increase in wealth may increase consumption despite income levels staying the same. However, both the consumption and savings function may shift upwards as well because of the newfound wealth. The same is true in the opposite situation. If wealth decreases, the consumption and savings functions may decrease as well.

2. Expectations

In some cases, consumers may adjust their spending habits based on the expectation of future income coming their way. Expectations change the shift in consumption and savings functions because there is no change in actual income, just how it’s being spent.

For example, suppose Naomi assumes her income is going to increase soon. She may consume more now because of her expectation that her income is about to grow. This may highlight an upward shift in the consumption function without an increase in income.

On the other hand, if Naomi were pessimistic about her future income, such as the fear of losing her job, she may decrease her consumption without dropping her income. This scenario may also shift the consumption factor.

Debt

Consumers may also adjust their consumption and savings if they’re in debt. It’s observed that in economies where consumer debt rises, savings go up while consumption goes down. There is a level of debt when consumers typically feel uncomfortable spending more. Even if their income remains the same, if too much debt plagues their pocketbooks, they will start to save more and spend less so they can pay off their debt.

Conversely, if there are low levels of debt, consumers tend to spend more and save less.

Recommended: What is the Average Savings by Age?

Why Marginal Propensity to Save Matters

Using the data from MPS and MPC helps businesses, governments, and foreign policymakers determine how funds are allocated. For example, economists can assess this data to determine increases in government spending or investment spending, influencing savings numbers.

As for consumers, using the marginal propensity to save formula can help them make adjustments to their own spending habits. If their MPC is higher than their MPS, adjustments to consumption may need to be made.

How to Start Saving Money

While the way consumers spend helps the government and economists determine the best way to increase government spending, the way you choose to spend your money can help you set up a solid financial future. Carefully considering all of your spending options may get you on a path toward financial security. Being motivated to save money can have long-term benefits.

So if a windfall comes your way, you may want to consider carefully choosing how to spend those funds. While it’s tempting to use the money on a shopping spree, putting it in some type of savings account may be a better financial decision. After all, saving your extra disposable income can help build an emergency fund, avoid taking on debt, and accumulate a nest egg for your retirement.

Here are a few steps for getting started, even when it feels hard to save money:

Identifying Your Savings Goals

Do you have short-term goals like accumulating an emergency fund to pay for unexpected expenses? Or perhaps you want to save for a family vacation? Maybe you have a medium-term goal, such as paying for a wedding reception or a new kitchen renovation. Or would you like to save for retirement as a long-term goal? No matter your goals, you’ll want to have a clear idea of how much cash you need and by when.

First, decide on a goal date — when you want to have the money saved by. Then, divide the goal amount by the time frame, in months, to determine how much cash you need to stash away each month. Finally, decide where to keep the funds.

•   If your goal is short-term, you may want to consider putting your cash in a high-interest savings account or money market account. Either type of account is relatively low risk and is likely to be FDIC or NCUA insured, depending on the financial institution.

•   If the goals are more long-term, retirement accounts or brokerage accounts are worth considering since they may help your money grow.

Recommended: Take the guesswork out of saving for emergencies with our user-friendly emergency fund calculator.

Creating a Budget

It’s hard to track your money if you don’t know where it’s going. Creating and sticking to a budget is a great way to monitor your spending habits so you can stay on track.

•   To start, take note of your income and expenses for a month or two.

•   Next, create a monthly budget that reflects the average spending amounts for fixed expenses such as your mortgage and variable expenses such as eating out or clothes shopping. Also note money that goes towards savings.

•   If you determine you’re spending more than you earn, you may want to look for ways to cut back on your expenses, such as canceling subscriptions you don’t use. Or you could bring in more earnings by starting a side hustle or selling items that are still useful but that you don’t need.

Using a tool like SoFi or another digital tool makes it easy to track and categorize your expenses. It also helps you find ways to save and lets you monitor your progress toward your goals.

Recommended: Struggling to create a balanced budget? Try our 50/30/20 budget calculator for a simple solution.

Opening a Savings Account

When you receive an increase in your income, setting up automatic contributions to your savings or retirement accounts allows you to set aside extra money by automating your savings instead of having to manually transfer money each month. Look for an account with higher than average interest rate, typically found at online vs. traditional banks.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can MPS be greater than 1?

The marginal propensity to save (MPS) cannot be greater than one since it is a change in savings, and that difference cannot be greater than one, nor less than zero.

How do you calculate the marginal propensity to save?

To calculate the MPS, or the marginal propensity to save, use the formula of change in savings divided by change in income.

What is the difference between average and marginal propensity to save?

The average propensity to save is defined as the ratio of total savings to total income. However, when talking about the marginal propensity to save, or the MPS, that is the ratio of change in savings to a change in income. The latter reflects a shift.

Photo credit: iStock/MarsBars


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



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SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

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